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bne September 2021 Companies & Markets I 17
heating and transport fuels, rather than individual car drivers or building owners. It will aim to reduce emissions by 43% by 2030, with a 2005 benchmark.
In terms of funding, the EU will double the budget of its EU Innovation Fund to €50bn per year between now and 2030.
Brussels will also ban sales of new fossil-fuel cars after 2035 and provide social support for EU citizens affected by the green transition.
Free allowances
Looking ahead, the allocation of free allowances, so crucial to many emissions producers’ conditional support for CBAM, will remain controversial.
Opponents, mainly in the green lobby, are worried free allowances will hold back decarbonisation.
“The CBAM proposal released today sends a strong signal about the EU’s intention to transform heavy industry in the EU and abroad in the shift to net zero. But there are still lots of details to fix if that intention is going to be turned into
“The CBAM proposal released today sends a strong signal about the EU’s intention to transform heavy industry in the EU and abroad in the shift to net zero”
reality. We need a faster phase-out of free allowances to
boost incentives for industrial decarbonisation and, crucially, targeted support to help developing countries invest in cleaner technology,” Johanna Lehne, senior policy advisor, Industry & Trade at E3G, a climate change think-tank, said.
The sheer complexity of both CBAM and the wider Fit for 55 package means that the potential for greenwashing, which can be defined as creative emissions accounting rather than real emissions reductions, will increase, noted Bellona, a non-profit entity that fights climate change.
On the other hand, Europe’s heavy industry warned of increased costs, even though they broadly agree with the need to reduce emissions.
The European Steel Association (EUROFER) said that it could put €50bn of current European investment projects in danger.
“The Fit for 55 EU ETS/CBAM proposal to remove financial resources through the post-2026 phase-out of free allocation – in favour of an untested and incomplete CBAM – risks hindering, rather than incentivising, low-carbon investment,” EUROFER said in statement.
The European steel industry would need to invest €144bn by 2050 in new technology to meet Fit for 55 targets, threatening to raise steel production costs and prices by 35-100%, EUROFER forecast.
The renewable energy sector has welcomed the new proposals, as demand for cleaner wind, solar and geothermal energy will increase.
European Commission President Ursula von der Leyen said that Europe’s 2030 renewable energy target would rise from 32% to 40% of final power demand as part of amendments to the Renewable Energy Directive.
“The European Commission’s proposed 40% renewables target would correspond to 660 GW of solar power installed by 2030, amounting to 58 GW installed each year, a huge number, driven by the versatility of solar and record-breaking cost reductions,” said Walburga Hemetsberger, CEO of SolarPower Europe.
Exporters
Meanwhile, exporters into the EU are already counting the cost and doubting the legality of the CBAM.
China has said that measures would expand climate issues into trade in violation of international principles and hurt prospects for economic growth, Reuters reported.
The Russian government has estimated that the country’s exporters to the EU could face costs of up to $7.6bn per year.
However, the CBAM rules allow any carbon payments made in the exporter's home country to be offset against CBAM payments. This could help encourage the development of carbon regulations and a carbon price in Russia.
Also, the fact that the scheme will only be up and running from 2026 means that industry in countries such as Turkey, Ukraine and Russia have some time to become greener by investing in new cleaner technology.
Meanwhile, Turkey, Russia and China, which stand to be hit the most by the CBAM as they are major exporters of the most vulnerable products, are the most likely countries to take legal action.
They could dispute the measure as anti-competitive in the World Trade Organization (WTO). However, the EU has been careful to avoid double taxation and discrimination against exporters into the EU and is confident that it would stand up to any test by the WTO.
Paolo Gentiloni, the EU’s Economy Commissioner, stressed: “CBAM as we call it is not a tax, it’s an environmental measure.”
“We are also ready to try to find the balance between our ambition, and the necessity of global co-operation, because you need ambition but also global co-operation to have results from this point of view,” said Gentiloni.
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